Antitrust Concerns

Discount operator Spirit Airlines (SAVE) has rejected a proposal by JetBlue (JBLU) to acquire it. The airline’s board cited regulatory antitrust concerns they believe would ultimately doom the deal to fail, bringing along uncompensated risk to shareholders. The logic is that JetBlue’s acquisition would effectively eliminate the biggest ultra low-cost carrier and would therefore be anticompetitive.

By contrast, Spirit’s intention to merge with budget-airline Frontier (ULCC) would increase competition with premium airlines and provide a low-cost alternative to travelers.

Shrinking Pool of Airlines

A series of mergers in the airline industry have shrunk options available to travelers, with premium airlines representing the biggest players in the space. If Spirit were to join Frontier, the new company would rank number five in size and become a serious contender against the entrenched large carriers; American (AAL), Delta (DAL), United (UAL), and Southwest (LUV).

Spirit Air’s board contends that being acquired by JetBlue, which partners with American, would ultimately lead to higher fares. This would limit options for the budget-conscious traveler who is willing to trade legroom and free drinks for a lower ticket price.

Carriers Respond to the Resurgence of Demand

As consumers emerge from the pandemic eager to travel again, demand for summer travel is hitting record highs. Carriers are looking to scoop up some profits as they recover from a disastrous couple of years, while they rebuild capabilities to service the growing customer base.

Many airlines are hiring thousands while offering higher wages and remote work options. They are also investing in technology that will provide customers with more self-service options. Customers may cheer the efficiencies that could result, such as reduced hold times. Still, while these new hires get up to speed, travelers may need to exercise patience as the newbies struggle to resolve complex issues.

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